Advanced Accounting Chapter 12 Smartbook

Plafix chemicals is a U.S. based parent company which has a subsidiary, Alpha Co, located in Ireland. Which of the following statements are true about Plafix's financial reporting?

-Because the subsidiary is located in Ireland, the local currency is the euro. -Because the parent company is located in the U.S., the reporting currency of Plafix is the U.S. dollar

Which of the following statements are true with regards to comprehensive income according to ASC 220?

-Comprehensive income includes net income and other comprehensive income -Comprehensive income is defined to include all changes in equity during a period except those from investments by and distributions to owners.

Which of the following items of a foreign subsidiary are recognized by a parent company making entries on its books in the dollar equivalent values?

-Income -Translation adjustment -Dividends

Which of the following statements are true regarding a differential's unamortized balance?

-It is translated at the current exchange rate used for balance sheet accounts -It is reported on the balance sheet of the parent company

The local currency of a foreign affiliate becomes the functional currency when

-It obtains financing from local sources -It does not regularly remit the cash generated to the parent company in the US. -Its transactions are mostly in the local currency

Identify features of the translation process

-It retains the underlying relationships presented in the foreign entity's financial statement -It allows the economic relationships to pass through the translation process into the US parent's reporting currency -It enables the evaluation of the performance of the foreign entity's management with the same economic measures used to operate it.

Vilane Solutions is an US based company with a subsidiary in France (SKAN). Which of the following are reasons for SKAN to use US dollar as its functional currency even though it maintains its accounting records in the euro?

-Most of the sales markets of SKAN are located in the US -Most of the finances for SKAN are provided by Vilane

Whats true if a parent company uses equity method and no intercompany revenue transactions occur?

-Parent's net income equals the consolidated net income -Parent's retained earnings equals the consolidated retained earnings.

Identify true statements about the accounting change in economic circumstances necessitate a change in the designation of the foreign affiliate's functional currency?

-The accounting change is treated as a change in estimate -The accounting change is given a current and prospective treatment.

Identify the features the FASB has adopted as indicating a functional currency

-The functional currency is the currency of the primary economic environment in which an entity operates -The functional currency is the currency of the environment in which an entity primarily generates and receives cash.

Which of the following statements are true about declaration and payment by a foreign subsidiary?

-The parent company would record dividends receivable from the foreign subsidiary on the declaration date -The parent company would adjust the dividends receivable to the current exchange rate on the balance sheet date.

When is the weighted average method used in financial statement conversion?

-When there are seasonal fluctuations in the income statement -When there are rapid changes in the exchange rates

For maintaining economic relationships in the functional currency statement, the account balances must be translated by ____ exchange rate.

A comparable

Each period's OCI account is closed to

Accumulated OCI

The ____ rate for a period is usually the exchange rate used to measure revenues and expenses.

Average

Which of the following exchange rates is used in the translation of a foreign entity's revenue and expenses from its functional currency into the US company's reporting currency?

Average exchange rate for the period covered by the financial statements

If a foreign affiliate has active sales markets in its own country, the local currency may be the ____

Functional Currency

Interosis Equipment inc, is a U.S. based company with a subsidiary in Sweden (Emipia). The U.S. dollar will be considered the functional currency when

Interosis primarily provides financing to Emipia.

Which of the following statements is true of a local currency unit?

It is the currency in the country or jurisdiction where an affiliated subsidiary is located

Which of the following statements is true about the current exchange rate?

It is the exchange rate at the end of trading day in the balance sheet date.

Identify the impact of the consolidation entry on the accumulated depreciation of a foreign subsidiary

It reduces the accumulated depreciation of the foreign subsidiary.

The amortization and allocation of the difference between an investment's cost and its BV should be

Made in the foreign subsidiary's functional currency before translation

Identify a reason to use a parent company's currency as the functional currency.

Most of the subsidiary's cash transactions are in the parent company's currency

Worksheet entries are made on ____ books.

Neither company's

Which of the following would be assigned a share of the translation adjustment in the consolidation of a less-than-wholly-owned subsidiary?

Noncontrolling Interest

A periodic change in a parent company's translation adjustment from a foreign investment is recorded as a component of the parent company's

OCI

The foreign currency is the functional currency when the

Subsidiary's cash flows are in the foreign currency and they do not affect the parent's cash flows

In the consolidation process, the translation adjustment computed on the differential should be adjusted in the

Subsidiary's income statement

Identify the statement that defines "recording currency"

The currency in which a company records its transactions in the financial statements

Identify the exchange rate used for the translation of dividends

The exchange rate on the date of declaration

Which of the following exchange rates should be used for the translation of a material gain or loss resulting from a special event?

The exchange rate on the date of the event

To maintain the economic relationship in the functional currency statements, the translation is made using the current exchange rate for all

Translation adjustments in the consolidated financial statement.

ASC 830 provides guidelines for the

Translation of foreign currency into U.S. dollars in the preparation of consolidated financial statements

Dividends receivable from a foreign subsidiary should be adjusted to the value based on the ____ on the balance sheet date.

Weighted average exchange rate

On January 1, Unic Chemicals, a US based company purchased 100% of the capital stock of an Italian company for $45,000. The Italian company's BV was only $42,500. The differential is attributable to a patent amortizable over five years. Identify the JE that is the excess value classification entry at January 1

Debit Patent for $2,500 Credit Investment in Italian Co for $2,500

A decrease in the exchange rate during a period results in a ____ balance in the translation adjustment account.

Debited or debit

The foreign transactions in an entity's records are adjusted to their equivalent functional currency when the entity

Enters into transactions denominated in other currencies

Serve inflation is defined as inflation

Exceeding 100% over a three year period.

The historical exchange rate is the

Exchange rate that existed on the date the initial transaction took place

T or F: A foreign affiliate's functional currency can never be changed

False

The balancing item that makes the translated trial balance debits equal the credits is called _____ adjustment

translation

A deposit in foreign currency is reported in a balance sheet stated in foreign currency and the translation is done at the rate on the date of the

Balance sheet

The foreign currency transaction loss is a component of the

Subsidiary's OCI

The foreign currency unit account is classified as a ____ on a subsidiary's balance sheet.

Current Asset

If the dividends are not paid by the end of the year, the dividends payable liability will be translated at the

Current Exchange Rate

The differential's periodic amortization is measured at the

Current exchange rate used to translate other income statement accounts

Identify the option that helps verify the amounts reported on consolidated financial statements

Relationship of the parent's net income and retained earnings with consolidated net income and consolidated retained earnings

The accumulated other comprehensive income is reported in the entity's balance sheet as part of the

Stockholders' equity section

What is true regarding a parent company's adjustment resulting from the translation of the differential?

The parent company's original investment in the subsidiary should be revised based on new exchange rates

Which of the following statements is true about consolidated financial statement reporting of a U.S. based parent company which has a Belgium-based subsidiary?

The subsidiary financial statements should be reported in the parent's recording currency

The worksheet entries are made on

The worksheet elimination columns

A translation adjustment arises because an investee's assets, liabilities, and SH equity are translated at

different exchange rates